Ford's Default Rating Rises to BB- - Analyst Blog

Fitch Ratings has upgraded ratings on both Ford Motor Co. (F) and its finance arm, Ford Motor Credit Co. LLC (FCZ), due to a strong performance by the company along with its debt reduction measures in the second quarter of 2010.

The issuer default ratings on the company and its subordinate have been raised to "BB-" from "B", while maintaining a 'Stable' outlook. The new rating implies a high default risk combined with some limited margin of safety.

Ford has beaten Fitch's expectations both in terms of net income and debt reduction measures. But the results may not be sustainable in the long term, given the unstable situation persisting in the U.S. and the European markets.

Fitch anticipates that the usual plant shutdowns may also be a crucial risk to the company in the second half of the year.

Ford's net income in the second quarter 2010 stood at 61 cents per share, compared with the Zacks Consensus estimate of 40 cents. Operating profits also saw a $3.5 billion improvement from the year-ago quarter to $2.9 billion. The company ended the quarter with $21.9 billion of gross cash and $27.3 billion of debt. In addition, it paid $7 billion of debt, which has led to a reduction of annualized interest costs of $470 million.

Ford Motor is struggling to maintain its global existence and competitive position at a time when the Chinese and the Japanese automakers are giving all the U.S. car manufacturers a run for their money.

The federal government recently supported the company with a $250 million loan guarantee to boost the company's export sales. This may help the company by generating some additional revenue through expanding business.

 

 
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